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I kind of thought that lateraling meant a bigger jump down the prestige scale. I always figured that the VXX would prefer their homegrown candidates over laterals who couldn't cut it at a V10. I made the assumption that people are lateraling to places where they think they have partnership chances, but maybe i'm off about that.

You are.

Why would people lateral to similarly situated firms? If they were pushed out, why would other firms want them?

People make the jump for one of a # of reasons (any/all of which may be the stated reason for the move), such as:

"I want to do X, and I couldn't really do X at Old Firm, but New Firm is better at doing X"

"Given the limited opportunities for partnership at Old Firm, I wanted to move to New Firm where I thought I would have a chance at a long term career"

"I was the best associate in practice group X at Old Firm, and New Firm is really an industry leader, so I want to take my skills to the next level"

really comes down to (and this order is not meant to tie to the above):

-pushed out because they can't hack it-trying to "trade up" as a junior/mid-level-trying to "trade down" because old firm is too "hard" / they're not good enough / pre-push-hate the culture

I rarely see "trade-downs" work unless it's an exponential one or at a senior level when a good person just isn't good enough. The 4th year who thinks life will be better at Sidley than it was at Cravath will be wrong.